On Bankruptcy: How hitting rock bottom can make Stockton stronger in the long run

By the end of this week, Stockton will have formally declared for chapter 9 bankruptcy protection in what will go down as possibly the most infamous day in the 162 year history of the city. No matter your stance on the issue, bankruptcy is now a foregone conclusion. The real question now is how will Stockton use this opportunity to reshape the city.


At first read, you might not characterize bankruptcy as an opportunity, but, in the end,
Stockton, its residents and leaders, now have the opportunity to take a step back to really think about how we got into this mess and how can we make sure this never happens again.

While there are undoubtedly many factors that contributed to the city’s current state of affairs, Stockton’s sprawl-based economy is certainly one of the main culprits. Our unencumbered growth at the edges of the city created the illusion of wealth, leading us to think that we could exponentially annex farmland at the periphery and forever reap the benefits of more and more property and sales taxes. Today, we know that building our economy around sprawl was foolish, as sprawling subdivisions and vast shopping centers did nothing but redistribute revenue to other parts of the city. We weren’t making more money, we were just pushing what we had further and further out. Police, fire and city employees were forced to serve a growing city, and the tax revenue collected from these new developments did not come close to covering these added expenses, especially now that housing values have collapsed.

Moving forward, it is paramount that city leaders and residents understand that we cannot go back to this unsustainable pattern of growth. Instead, we need to focus on using the resources Stockton already has, revitalizing neighborhoods that already exist and building on land that is already within the city’s limits. As you know from reading other articles on the site, focusing on infill development is a much more efficient use of a city’s resources and provides a much higher return on investment than strip malls and subdivisions. We have suffered the consequences of a sprawl-based economy before, a return to this strategy should be unimaginable.

For some, Stockton’s bankruptcy filing will be the last straw, the final sign that it is time to get the heck out of Dodge. I don’t blame these people as Stocktonians have had to put up with a lot of negativity over these past 10 years: Soaring crime rates, scaled back city services, dubious titles from national publications. In fact, I know a handful of people who are deciding it’s time to call it quits and have already moved to other locations in the valley or to the bay area.

But for those of us who have not given up on Stockton, we have a chance to shape the course of the city for the better. Make no mistake; Stockton will bounce back, as the city’s long-term projections are still positive. Our population is still growing and the unemployment rate is trending in the right direction. Stockton has tremendous assets such as the port, the University of the Pacific, proximity to the Delta, the Bay Area and the mountains, not to mention great whether.  The housing market will stabilize and grow, and people will start flowing to the city from the Bay Area once again to escape the high cost of living. If we implement the right development strategies, working with developers to come up with plans to manage growth in the right way, Stockton has the potential to be a great city. However, we can’t get there unless our leaders have the integrity to make the right decisions on growth, because it would be easy to slip back into old habits.

Stockton is facing its darkest hours, but by no means should this signal the demise of the city. Bankruptcy brought attention from all over the world, but now the cameras are gone, and we have a chance to turn Stockton into a success story from the ground up. The next time the city garners international attention, it will be for the way Stockton was able to use this opportunity to become a stronger community and a better city for everyone.

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Categories: Community Commentary

Author:David A. Garcia

David A. Garcia founded SCL in March of 2012. He holds degrees from UCLA as well as Johns Hopkins University and currently works as the Chief Operating Officer at Ten Space in Downtown Stockton, and previously worked as a researcher/analyst for a congressional agency in Washington DC. The views expressed here are solely of the author.

6 Comments on “On Bankruptcy: How hitting rock bottom can make Stockton stronger in the long run”

  1. Ned Leiba
    June 28, 2012 at 4:26 pm #

    The problem is not our “sprawl based economy” per se. That is a symptom of a disease must deeper and more troubling. Anyone, inside city government or the educated, concerned public could have seen the financial disaster coming. There was a $500 million deficit 6/30/2007 and it grew to over $830 million 6/30/2010. That is the unrestricted fund deficit based on the audited financial statements of Stockton. The important deficit number is not 26m; it is unrestricted liabilities over available assets – not just the amounts that must be paid out within a year. And it has grown and grown and grown like a cancer until it has killed us.

    So before we blame sprawl, or worry about the correct policy on urban development or anything else, we need to worry about our horrible inability to recognize gigantic problems like a $830 million deficit, and determine why the city and the public did not act early and rationally to address those problems. Why do we fail to see and act on something so apparent?

    That inability is due to (1) failure to think independently and rely on so called experts, (2) failure to use fundamental analytics to understand problems in depth, and (3) a persistent, irrational drive to take small problems and make them big, and ignore big problems, because of faddish, irrational sentiments.

    For example, there is a pervasive marketing campaign in California and Stockton to promote solar photo voltaic (SPV). We spend ungodly sums on this economically and technologically primitive local energy solutions. It appears that new homes in Stockton will require SPV or another expensive alternative. It is possible under the “illegal” Stockton Green Building Ordinance that repairs to older homes may require the home to be retrofitted for SPV accommodating features. This is all expensive; it takes large amounts of government funds that could be much better used for other purposes; SPV uses a few angstroms of the available energy in the electro magnetic spectrum (i.e., band gap limits are profound)… and yet the city promotes and funds this technology while going bankrupt.

    The problem is the absence of fundamental analytics and excessive sentiment. The symptoms – like uneconomical urban sprawl – are ubiquitous and costly. Failure to watch the overall fiscal condition of our city is fatal.

    As a matter of policy and tactics, I agree with you. Stockton needs to avoid sprawl and focus on in-fill development for many reasons. But the solution to our fundamental problem is not so simple as a change in urban development policy.

  2. Stockton City Limits
    June 28, 2012 at 5:27 pm #

    Ned, I completely agree with you. Sprawl is not the reason why Stockton is now bankrupt, and promoting infill development is not the cure to all that ails us. There were a series of poor choices that lead to this mess and there is no one incident or decision that one can point to as the culprit. I do believe that sprawl contributed heavily to our deficit problem and the development decisions made are a perfect example of the short sidedness of city leaders you mention. The failure to see the consequences of our growth pattern is indicative of the larger issue at hand. I do believe that an improved growth policy is an integral part of getting the city back on track, though I readily acknowledge that smart growth is not the entire solution

    As far as the small problems issue, I am interested in the example you present with the SPV panels. Is there a stated policy you are referring to? A policy that mandates the use of solar panels on retrofitted homes would seem restrictive, I would be interested in checking that policy out.

    Thanks for the insight.

    • Ned Leiba
      June 28, 2012 at 6:27 pm #

      David,

      You can send me your email and I can send you the latest draft of the Stockton Green Building Ordinance (GBO) and information on SPV.

      As you may know the GBO is not currently enforceable because it has been rejected by the California Energy Commission. It recently came back again to the CAPAC for consideration.

      Para C of the GBO initially required the application of Cal Green Title 24 Part 11 as mandatory for “development and redevelopment.” The CAPAC was told this provision was unnecessary for a variety of reasons, and para D and E covered what was needed for retrofit of older structures, which is the novel part of Stockton’s GBO.

      So Para C was marked for deletion.

      Then in a later draft, Para C came back without explanation. No explanation despite my requests to explain why and what its effect would be. Para C now reads “all additions, alternation and repairs” must meet Cal Green.

      As you may know, the new Cal Green standards seems to include the SPV provisions.

      The Stockton GBO mandates that older structures in some cases must meet higher energy and other standards. That might be the case for a repair now under C, and not just the more sensible situations in Para D and E, which has reasonable limitations on cost etc. Para C has no limit on cost to an owner.

      Again, I asked staff and the CAPAC (1) why the return of para C, and (2) will it result in repairs or even the remodels under D and E to somehow requiring retrofit to meet the new Cal Green standards.

      There has not been a response, but that did not stop the CAPAC from adopting the revised GBO with para C! The committee does not know what Para C means; no one knows what it will cost; no one seems to care.

      In terms of the SPV, that is a very sore point because of the misleading information provided in the draft CAP to justify SPV. The Energy 6 proposal in the CAP lists SPV where a 5kw residential facility with a cost of $28,063, with annual 6713 KWH saved, results in a substantial net present value economic gain (not disclosed per unit) that sums up to $47 million! The city does not need to file bankruptcy. It just needs more SPV that yeilds $47 million more than cost using present value analysis!

      The consultants clearly used incorrect tax and rebate amounts and the financial analysis makes no sense. When I asked for the detailed computations and source of the clearly wrong numbers, the CAP consultants dismissed my concerns and said everything had been vetted by the NREL National Renewable Energy Lab.

      I decided to contact them, and they said no, those tax and rebate amounts were local inputs. The consultants apologized, but there is no objective economic analysis involved in any of this – it is marketing, just like the bond salesmen who seduced our city to issue those “exploding” 2007 pension bonds.

      There is no objective, analytical financial person who would generally support SPV when base load power is available, just as there no objective, analytical financial person who would have supported those 2007 “exploding” pension bonds which have been a terrible debacle.

      The consultants and the city are trying to promote and market SPV with clearly incorrect assertions that parade as an objective study. They are trying sell something that makes no sense in most cases, but the hype for SPV does result in substantial government funding thru CEC and other rebates; federal funds to the city that could go elsewhere, City of Stockton development grant funds for some claimed “net zero developments”; and of course tax credits.

      If you want prolix details I got em.

  3. L.W.
    June 29, 2012 at 5:07 pm #

    Ned,
    Do you think there is any value in Stockton trying to position itself as an environmentally oriented city, in order to try to build a positive image after the current situation is past?
    Something like, “Stockton: The Electric Truck Capital of America”

    • Ned Leiba
      June 29, 2012 at 6:31 pm #

      David,

      I guess you know how to entice me.

      Stockton has wonderful, inherent benefits – people and resources – that should attract any business. The problem is the economic and regulatory environment must be more accommodating.

      I would never chose one type of business over another, and I want folks to evaluate coldly the claims coming from “environmental” marketing, just like they should any type of propaganda.

      I wish EVI all the success in the world, but I don’t think they have much of a manufacturing operation here. And their product is heavily subsidized.

      Everyone should know the technological limits of battery based electric vehicles. Compare the energy storage and weight of batteries to gasoline and the game is over. Battery powered transportation is economically and technologically senseless, except in very limited circumstances. If there is ever a dramatic jump in practical, inexpensive battery capability, it will be used by the base load electric producers – they would use it to address their costly peak load problems.

      Of course, the gov could take funds from the taxpayers and subsidize that industry, but it does not make it economical and eventually the subsidies will have to end. You will have nothing but bankruptcy in that sector because the fundamental economics do not exist.

      No David, Stockton has suffered from too much deception, sentiment and propaganda. We don’t need another marketing success that presages economic disaster and bankruptcy.

      Thanks for listening to me.

  4. Stockton City Limits
    July 2, 2012 at 6:53 pm #

    Ned, I believe the comment above was from another commenter, not from me. Nevertheless, I agree with your sentiments. Cities that have traditionally relied on a sole industry to buoy their economy have generally seen poor results over the long run (ie Detroit with the auto industry, Pittsburgh with steel). In Stockton, our economy was built solely on housing in the 2000s, and obviously that did not work out well. A more balanced approach to the local economy is the way to go, just like having a balanced stock portfolio. Regarding the merits of electric cars/trucks, I think it will be difficult for these vehicles to compete in the market place with traditional gas cars beyond the subset of the population that covets this product and can pay more for it. However, once the technology advances to the point where electric cars become competitive with gas vehicles, then I believe you will see a shift in the market, although this may be years away and subsidies supporting research into this technology are drying up. I could talk about the pros and cons of EVs day and night, but that is for another day, and probably another blog entirely.

    LW, it is funny you mention electric trucks, because Stockton is home to a company that specializes in these vehicles:

    http://www.cvbizjournal.com/general/local-news/stockton-electric-truck-manufacturer-wins-chance-to-provide-us-government-military-with-vehicles.html

    Stockton does have manufacturing capability as it is ideally located between I5 and 99 with close proximity to the tech industry in Silicon Valley. I think it is conceivable that the city could lure some manufacturing to the city from firms in the bay area, though the word is that the city’s workforce is somewhat “rough,” which is a barrier to getting companies to move here.

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